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News & Trends - MedTech & Diagnostics

Sovereign manufacturing Bill opposed by Coalition in the face of support from health industry

Health Industry Hub | February 20, 2023 |

MedTech News: The Coalition has opposed the National Reconstruction Fund Corporation Bill, a legislation for a $15 billion initiative over 10 years to strengthen the country’s sovereign manufacturing capabilities, delivering on a key Labor election commitment announced in March 2021.

The National Reconstruction Fund aims to make strategic investments in a number of priority areas identified by the CSIRO in their paper COVID19: recovery and resilience, including $1.5 billion for medical manufacturing, $1 billion for critical technologies, and $1 billion for advanced manufacturing.

The Opposition has spoken against the Bill saying “it would not reduce energy prices or alleviate supply chain and skills pressures.”

Hon Shayne Neumann MP, Chair of Joint Standing Committee on Foreign Affairs, Defence and Trade, said “One of the big lessons of the pandemic was that so much of our production and imports were dependent on just one country, which left us massively exposed to supply chain vulnerabilities, compounding the botched vaccine rollout by the previous government. COVID also highlighted that many other manufacturers are struggling to be globally competitive, especially when it comes to innovation and technology.”

In its submission, the MTAA welcomed the National Reconstruction Fund consultation and pointed to Australia’s strong track record in innovative medical devices, most notably Cochlear and ResMed. “MedTech typically has lower hurdles for entry than biopharmaceuticals, which means it can be a more realistic option for investment in Australia.”

However, the MTAA has warned that “Australia needs to be careful not to try to do everything, when it is 2% of the world market. Some specialisation will make senses. The National Reconstruction Fund should be aware of growing opportunities to manufacture MedTech that must be supplied regionally due to custom requirements where the competition pool for investment is therefore smaller.”

The Australian Medical Device Venture Investment Summary Report indicated a gap in understanding of the medical technology sector. From the $AU1.7 billion VC invested in health and medical technologies between 2018 and 2023, only 4% was for seed stage and 32% early stage funding. Additionally, 38% ($AU96 million) of Australian medical device venture capital identified over the past 5 years has flowed offshore into deals where companies were headquartered outside of the country.

According to MTAA, a weighted average venture investment of AU$66 million is required over the life of a medical device company, to cross the startup valley of death, commercialise and achieve a financial exit for their backers. Currently, VCs invest <AU$32 million a year into the domestic medical device sector suggesting that Australian innovations whither on the vine or that the top end of the value chain is serviced almost entirely overseas.

AusBiotech’s submission to the consultation paper highlighted the fact that 80% of ‘medical science’ companies developing therapeutics, diagnostics, devices, vaccines and other technologies in Australia are in the very early stages and are small and medium enterprises, the majority of which are pre-revenue, pre-market and on a journey of commercialisation. The biotechnology sector is characterised by long and costly product development cycles of around 15 years and up to $2.5 billion to bring one innovation from research to market.

In this sector, companies face continued challenges accessing private capital both at early (pre-clinical) and later stages (Phase II and beyond), often leading them to seek inappropriate commercialisation strategies such as premature public listing on the ASX. Additionally, a barrier to greater private sector investment is the number and access of biotech-literate fund managers in Australia. Investors without experience tend to shy away from the sector due to the nature of its different risk profile and complex science.

AusBiotech has pointed to the potential for cell and gene manufacturing where Australia is well positioned to capture the high-value opportunities that exist now, and in the future.

“If we get this right, success could be worth at least $6 billion in annual revenue, 6,000 new jobs across the sector for Australia by 2035 and earlier access to ground-breaking therapies for Australian patients,” AusBiotech stated.

Jerome Laxale MP, Member for Bennelong, ALP said “Like many of the businesses based in Bennelong, Sanofi has welcomed the announcement and consultation of this fund. They want to see investment in localised manufacturing, particularly in the medical sector. They also note that the National Reconstruction Fund has the potential to reshape Australia’s healthcare ecosystem by demonstrating that this government is willing to invest in transformative medical science.”

The proposed funding model, which is going to shift from direct grants and tax incentives to the government acquiring equity and providing loans, is likely to have unintended consequences, according to the Coalition. Businesses may not meet the eligibility criteria. They will perhaps have margins that are too small, or they will be too risky in the current uncertain economic landscape. They may not have the capability to create the complex and detailed business plans that they have to write to satisfy government departments rather than private investors. Feedback from stakeholders has raised issues of ownership. This is a big concern, as many manufacturers are family owned businesses.

The National Reconstruction Fund will be governed by a corporation with what the Coaltion described as “an inappropriate ministerial discretion in appointing the corporation’s board”.

Fifteen billion dollars in debt, which is what the government will take out for this fund, at the current 4% rates, will cost taxpayers $600 million a year.

Shadow Industry Minister, Sussan Ley, has suggested a timeframe of two years before companies see any government support for their work.

“Establishing something like the the National Reconstruction Fund takes time – time to legislate, time to attract a board, time to hire staff, time to establish processes, time to prepare funding streams, time to market, time to select applicants and time to settle contracts.”

The Senate Economics Legislation Committee has been probing the legislation since late last year and will put forward any changes to Parliament in early March. Research Australia has used its submission to the Committee Inquiry to urge the Committee to recommend the passage of the Bill.

The government can do it without the Coalition due to a solid starting position in the House. In the Senate, David Pocock, the Greens and Lidia Thorpe may get them over the line.

According to the government, if the Bill is passed, the funds will be up and running from 1 July 2023.

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